Micron Calms Fears of Memory Chip Downturn

Fears of a peaking market for memory-chip prices have been on the rise. A growing number of analysts believe prices for NAND Flash memory have already peaked, with DRAM expected to do the same later next year. Memory prices have buoyed many companies in the chip sector this year and driven market values to record levels. The PHLX Semiconductor Index is up 41% this year, but has slipped nearly 5% since late last month.

Micron’s fiscal first-quarter results Tuesday should ease some of those worries. Revenue surged 71% to $ 6.8 billion, with adjusted per-share earnings hitting a record $ 2.45 compared with 32 cents for the same period last year. Both were well ahead of Wall Street’s estimates. More notably, Micron projected a small sequential gain in both earnings and revenue for the quarter ending in February. Analysts had expected both to turn downward from the November quarter’s results.

That should at least ease fears of a peak already at hand. The memory market no longer just depends on PCs and smartphones; autos, cloud computing and even cryptocurrency mining are boosting demand for both DRAM and Flash. But investors are still right to pay close attention to developments. A surge in capital spending by Samsung, and a large number of government-backed fabs under construction in China could boost supply next year, driving prices downward.

That would likely trip up Micron, which has been the chip sector’s best performing stock this year. But the company’s rapidly expanding earnings have both moderated its valuation and boosted cash flow, allowing it to both grow capital spending and pay down more debt. That should be enough to keep Micron investors celebrating into the new year.